“The uniqueness of Germany’s innovation ecosystem comes, if at all, from cultural and historical consequences and the geographical realities,” said Crispin Leick, managing director of EnBW New Ventures (ENV), Frankfurt-listed energy utility EnBW’s corporate venture capital (CVC) arm.
“Germany is low on natural resources, the climate is ambient and allows for good working conditions and many of the largest German companies are direct descendants of a strong founder generation 100 to 150 years ago.
“Compared with other German-speaking European regions, there is only the size of the German market that leads to valuation differences, in my view. Comparability to Silicon Valley does not exist and all the managers travelling there in the past years can only take some ideas from it to transform it to the reality in Germany or Europe.”
Corporate VC investment volume in Germany peaked in 2019 at roughly $3.6bn across 86 deals, but dropped to $1.8bn in 80 rounds the year after, probably due to covid-19-associated factors.
Corporate exits topped in 2020 logging nearly $1.4bn, up from $150m the year before; however, the 2019 figure is probably because of multiple acquisition transactions of undisclosed size. The CVC-backed portfolio companies that went public or were acquired were mostly in the IT sector, followed by healthcare, financial and consumer technology developers.
Jens Busse, an investment manager at Evonik Venture Capital (EVC), the corporate venturing unit of Essen-headquartered speciality chemicals provider Evonik Industries, added: “We see in Germany a unique ecosystem of CVC units. Even if the absolute numbers of CVC investors in the Silicon Valley (149) is higher than in Germany (99), the ratio of CVC investors to VC investors in Germany (13.4%) is significantly higher than in the Bay Area (6.9%) and Israel (5.3%).
“With this high density of CVCs, these units are working closely together, cross-industry and across the value chain, so that startups can profit from the ecosystem. These networks are actively managed by the government, for example, through the High-Tech Gründerfonds.
“With their global reach, the German CVC units open the global market for their portfolio companies. With a big footprint in all industry sectors such as automotive, chemistry, pharma, software, energy and finance, the diversity of investors is much higher than in other areas, as the focus in Silicon Valley is mainly on software, communication and networking, hardware and commercial services and for Israel software, communication and healthcare.
“In comparison, Germany is lagging in the absolute number of CVC deals (266 in the last 12 months and 278 on average over the past five years) in comparison to the CVC Silicon Valley deals (1,010 in the last 12 months and 908 on average over the last five years).”
Top corporate-backed deals in Germany from 2014 to 2021 include rounds raised by e-commerce group Rocket Internet, food delivery service Delivery Hero, automotive e-commerce platform developer Auto1 and travel services provider FlixMobility.
Travel experience provider GetYourGuide and second-hand automotive marketplace Frontier Cars Group also had notable CVC involvement, as did BioNTech, an immuno-oncology therapy company that is known for the covid-19 vaccine it co-developed with one of its former shareholders, pharmaceutical firm Pfizer.
Rocket Internet, Delivery Hero and BioNTech have all enabled their investors to exit, joining companies such as drink delivery service Flaschenpost, e-commerce marketplace Zalando, RNA therapeutics developer Rigontec and internet-of-things (IoT) technology provider Relayr.
Concerning his unit’s investment practice, Ingo Ramesohl, a managing director at Robert Bosch Venture Capital (RBVC), industrial equipment producer Robert Bosch’s investment subsidiary, said: “Since its foundation in 2007, RBVC always had a strong international focus, as we see innovation by startups happening all over the world.
Ingo Ramesohl
“Our offices in Sunnyvale, California; Shanghai, China; Tel Aviv, Israel; and Stuttgart and Frankfurt, Germany underline this. We focus primarily on the team, the technology and the growth potential in fields that are relevant to Bosch. The location is less decisive.”
Regarding the pandemic, ENV’s Leick observed: “Germany is realising how slow and non-digital government is acting in the crisis, so this will give opportunities for the startups to help out.”
He added: “Germany’s innovation ecosystem has strongly developed – and continues to grow – in terms of the number of investors, invested amounts and types of investors. Today, it is possible to build consortiums that truly make a startup stronger by taking on different parts of the needs, for example, internationalisation versus industrial sector insights.
“We, therefore, spend more time in setting up the right mix and balance in a consortium than 10 years ago. The CVC community, especially, has grown; today, we only work with CVC setups that follow the same basic beliefs as ours.
“Huge governmental facility is also in the works, which is being managed by [German government-owned development bank] KfW, not only to support early-stage VCs but also to close the gap on growth equity.
“In addition, diversity is a strong discussion topic in Germany as the country lags by far other economies on this.”
Philipp Rose, another managing director at RBVC, pointed out that his fund is currently focusing on areas including artificial intelligence (AI) and deep learning as well as general explainable and validation of AI; 5G, edge computing and IoT; all kinds of software and hardware that enable Bosch in relevant verticals; process automation; quantum computing and next-generation computing; and autonomous systems.
Philipp Rose
EVC takes advantage of ecosystem collaboration, according to Busse, who said: “The number of CVCs has increased significantly in recent years – especially in 2015 and 2016 – which leads to good networking between CVCs and startups, and they are now also complemented by upcoming incubators and accelerators at the universities. The positive effect of collaboration between startup – speed – and corporates – the ability to scale – is currently perfectly shown with the fast development in the collaboration of BioNTech and Pfizer.
“This has no impact on our investment approach as we invest on a global scale, but overall, the willingness in the business units to work with startups has increased.”
Leick believes Germany’s tech companies will help the public sector transition towards digitisation. He said: “Germany will make a big infrastructure and digitisation push for years to come because the government has finally realised that Germany is years behind other countries when it comes to digital public service, digital education and digital infrastructure.”
Busse added: “Germany is strong in many industry sectors such as automotive, chemistry, pharma, software, energy and finance but some new trends are emerging. As well as strong activities in Berlin, Munich, Frankfurt, Hamburg and Stuttgart, we see a new ecosystem in North-Rhine Westphalia with a focus on cybersecurity, biotech and life sciences.”
German corporates have focused on series A, B and C rounds historically, targeting startups working on IT, healthtech, fintech, consumer and energy, among others.
On RBVC’s ecosystem collaboration, Ramesohl explained: “As RBVC, we are set up like an institutional VC that has one LP – Bosch. This entails that we invest in strategically relevant topics, but with the freedom and incentives of an institutional VC, well-aligned with startup interests.
“We can take the lead, co-lead or follow in a given financing round, however, we always team up with co-investors and invest alongside other reputable and strong VCs and CVCs. A good financial foundation enables the startups to focus on the essential part: driving the business forward.
Rose added: “RBVC is a very active investor. We support the strategic and operational development of the startups primarily through active membership in the board of directors, enabling access to sales channels, suppliers and markets.
“Incubators and accelerators, as well as universities, are good contributors to our dealflow of more than 2,000 startups per year. On top of our investment activities, we are utilising our dealflow to actively enable collaboration with the Bosch Group. We have institutionalised this effort through our ‘Open Bosch’ team.
“The colleagues are facilitating cooperation and partnerships in building bridges between startups and the respective Bosch business units worldwide. Open Bosch uses the so-called venture client model as a central multiplier function for this purpose.”
ENV does not work directly with the government but it does work with early-stage investors that receive government money, said Leick, who added: “We have some links with universities based on personal relationships and try to engage from time to time to convince students to join the
VC industry.
“When it comes to CVCs and VCs, we know the ones that are active in the smart infrastructure space and exchange regularly with them to discuss investment trends or common interests in order to prepare to invite them into deals based on such knowledge.
“It is great to work with players that are in the field for 20 years but we also enjoy working with fresh minds, that manage their first fund. After all, it is most exciting to discuss, how to support the entrepreneurs to build a successful and sustainable company with products that bring our three core targets together: people, planet and profit.”
Busse said open innovation is key for Evonik, so its research, development and innovation unit works closely with these organisations. “EVC is in close contact with our peer CVC partners but we also try to build investment consortia across the value chain. EVC supports incubators and accelerators by taking an active role in their education or it acts as an industry expert and first contact for the startups.
“Institutions such as the High-Tech Gründerfonds, European Innovation Council, European Investment Bank, the Federal Ministry of Education and Research and the Federal Ministry for Economic Affairs and Energy have made a significant contribution to the development of the ecosystem, therefore EVC is working closely together with them and give for example participants in the EIC programme the opportunity to pitch in front of the Evonik business lines to get valuable industry insights for their development, and maybe find a first customer in Evonik.”
Traditional hubs such as Frankfurt are now being joined by North-Rhine Westphalia
